In short
Promoters arrange the formation of a corporation. They are personally liable on contracts made before incorporation unless the other party releases them, for example through a novation with the corporation.
Key takeaways
- The corporation becomes liable only if it adopts the contract after formation.
- Adoption alone doesn't release the promoter.
- Promoters owe fiduciary duties to the corporation and its future shareholders.
Where it's tested
REG: Business Law: Agency & Business Structures — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A principal fires an agent but does not notify a long-standing supplier who had regularly dealt with that agent. The former agent places an order with the supplier in the principal's name. Who is liable to the supplier?